What are the Metrics That Matter for your venture? No… not the vanity metrics that so many of us were taught to pay attention to. What are the metrics that actually show you if your venture is on the right track?
I watch my students struggle with this a great deal. I’d like to offer some patterns that can serve as a starting point to anyone considering these questions.
- Cost to acquire/get a customer helps you evaluate different channels for their relative value, shows you when your website is doing a terrible job of converting visitors into contacts, steers you towards labor-efficient/scalable techniques, etc.
- Sales & marketing costs: out-of-pocket + labor (assume a market-rate labor cost so you do not underestimate labor-intensive marketing channels)
- # hits to your website, # of cold calls
- % that convert to contact you, % that meet with you
- % that purchase
- Cost to keep/retain a customer helps you spot when you are using unsustainable customer service / product delivery procedures.
- Cost of customer service team, returns, refunds, etc.
- # of customers
- Lifetime value of a customer helps you think about customer retention and how to grow revenue from existing customers by keeping them longer or by solving other problems for them via new products.
- % of customers who renew
- Revenue per customer
These three metrics, while not all-inclusive, are a fantastic starting point.
Steve Blank‘s Customer Development methodology emphasizes that startups need to seek “earlyvangelists,” potential customers who’s “hair is on fire.” Great image! Makes sense when you hear it! Then you try to find such customers and… their hair is not literally on fire so you struggle to apply the concept!
Here is a definition that my students find helpful (adapted from Steve Blank’s work):
A Customer’s “Hair is on fire” when they are in so much pain that they are already spending time and/or money on some hodgepodge solution that you are superior to?
Tag lines – they should follow the same rules as elsewhere in your presentation. “Don’t tell me about your lawn fertilizer, tell me about my lawn.“
Bad tagline: “All inPlay – Multiplayer online video games for the visually impaired and their friends & family.” – This emphasizes FEATURES. Why do we care that these are multiplayer online games?
Good one: “All inPlay – Allowing the visually impaired to play and interact with their friends and family unhandicapped and as equals.” – This emphasizes the benefits making it clear to anyone why this company is valuable.
Almost every startup I work with has a hard time keeping Pains, Gains, and Features separated in the heads. This is a natural challenge, but overcoming it is critical!
* Impact your customer’s ability to Get/Keep/Grow their own customers
* Impact your customer’s cost structure negatively (may hurt their profit margins, may create inconvenient cash flow situations, etc).
* For consumer-facing startups, pains can also impact a core emotion.
But don’t confuse that with HOW you solve the problem.
Example 1: Let’s imagine a consultant offering supply chain management solutions. But Supply chain management isn’t the PAIN, it is a set of FEATURES. His customers don’t have an amorphous “supply chain management issue.” They have issues like…
* Cost structure >> paying too much for supplies
* Cust. Relationships: GET >> time it takes to get supplies makes our turn-around time slow, meaning we are losing market share to faster competitors
* Cust. Relationships: KEEP >> supplies that showed up from china are WRONG, so we’re going to miss our promised deadline to our customer… possibly costing us the customer
Example 2: A consultant to retirement centers helping their staffs better communicate with hard of hearing clients. Training on how to communicate with hard of hearing people is a FEATURE. Her customers don’t wake up thinking they have a core business problem with that. But they do worry about…
* Cost structure >> High employee turnover due to frustration w/ communicating with our clients means we spend a lot of time & money training new people, lowering the productivity and profitability of our company.
* Cust. Relationships: GET >> Word is getting out that we yell at our patients, which is turning of the high-end families we really want to attract…
* Cust. Relationships: GROW >> Because we can’t communicate clearly to our hard of hearing patrons, we can’t up sell them any of the great offerings we have available for them and they are less likely to refer friends to us.
Steve Blank kindly open-sources his Lean Launchpad curriculum. In keeping with that spirit here is the syllabus to a 5-day version (inside are links to simple, custom tools we developed) of the curriculum we deployed at Smith (liberal arts women’s college) over January Term. I hope this proves of aid to others exploring adapting Lean Launchpad to Liberal Arts institutions.
Join me this Friday, 9am-11am, to watch 30 Smithies present the journey they’ve gone through in an intensive entrepreneurship bootcamp (the Lean Launchpad curriculum). I’m AMAZED at what these young women have done in just five days. I think you will be too. Oh, free food too :).